Dell Closes $60B Merger with EMC
wsj.com
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Selfishly I'm very interested in following a private Dell,as tech tends to lead to huge companies in monopoly/winner take all verticals. Dell being private is a decent case study to see how well a private company does against its public counterparts, specifically wrt short vs long term investment.
If you were wondering how the new company is doing post merger...
Moody's just upgraded Dell's credit rating from Ba2 to Ba1 following the merger. They claim that even though the new entity has significant amounts of debt and leverage, its overall credit profile has been upgraded.
The tracking stock, DVMT, that EMC owners were given has traded pretty well since it was released, it's slightly up, so atleast people who want out of the new entity have an easy avenue.
(~20 years ago when I started working in software I thought I would eventually get how these enterprise software giants actually were worth it. The more I learn and age...)
In the end I guess what companies like Dell and EMC do is to provide access to tech that otherwise (because of cultural reasons) is not available to non-tech companies. But.. anyway, all of this seems like it's ripe for disruption.
It is basically about switching costs. Even if you have the money you don't want to disrupt your operations because IT is doing a monster migration to different technologies.
This is a simplistic view. You can even imagine that all the issues can be solved with free open source development but the organization works in a specific way and changing the way they work, in that scale, involves a lot of risks.
Yes, every single Fortune 500 company should just "hire top notch developers". Think about that for second and then think about it again.
> But the whole problem is that these companies can't hire top-notch developers because of who they are.
Top notch developers are neither identifiable nor quantifiable. So that's a fairly unfounded statement.
That would turn out to be way more expensive than just paying what you consider exorbitant prices, and way more risky, i.e., it's not like it's easy to find top-notch developers, and even if a company could hire some, it's very unlikely that whatever they developed would compare well, by any metric, including cost, to what the company could get by buying a ready-made solution from EMC, HPE, et al.
No-one ever got fired for buying IBM.
To put this in another perspective, the vast majority of people buy factory model cars, maybe with the occasional dealer add-on. People could buy custom made cars, and if it was common enough, they might actually achieve a cost lower than MSRP of what Ford, Honda, Toyota, etc sell, by slapping together the freely available parts (from an industry which would look more like the PC parts industry). The average quality would be a big question though, and I'm not sure a lot of people would be willing to deal with that for their workhorse vehicles, that need to be relied on to get them from point A to point B reliably.
Though the majority of cars on the road have a street value of under $25k, and/or are under financing. Getting financing for a one-off isn't really possible unless you don't actually need the financing.
At the point where the failure of the item costs little but the interest in the item is high, it can make sense to go a more custom route.
EMC in particular is fairly custom hardware and software and still tends to deliver better value and consistency than the competition. EMC offers NAS options that has always been ahead of its' competitors. I say this as a passive observer as I've been in software development more than anything operational for the better part of two decades, but I remember in the mid-late 90's that what EMC offered simply had no competition at that time.
Today, it's entirely possible to build a software system similar to what S3 does in-house, but that isn't always what a given system/application, especially legacy systems, require. Not to mention a black box that's mostly closed vs needing specialized software management in-house. There are operational costs to this.
Using a single EMC device vs. hiring 3-5 FTEs making > 80k (120-150K after employer-side taxes) for 5+ years? That's a few million right there. This is often the trade off that EMC offers.
Dell itself offers consistency in broader terms... the same/compatible hardware across all employees... all the same docking stations, all the same monitors, etc. There's value in that as well.
EMC also contractually guarantees data integrity with some of it's higher end products/contracts. As does IBM/HP/Oracle. All your FOSS tools don't offer this, so your company has to shoulder this responsibility yourself.
Underwriting insurance on multi-million dollar contracts isn't something you can just disrupt unless you already have the funds necessary to burn all the way though series B laying around on your person. In which case, isn't their an easier idea to execute?
I wish they'd bring back the E6400/E6500 style of enterprise Latitude laptops, but of course with modern internals. These newer ones are much uglier and the screens are too short.
I think it's much more likely that the laptop makers saw an opportunity to save money by going to 16:9 because of the massive growth in 16:9 LCD screens thanks to TVs, because the LCD factories were pushing them for economies of scale.
You're not wrong.
The problem with your point of view (which I share - it is also my point of view) is that you're operating on the wrong layer of abstraction.
These customers don't need a server (or a network or a SAN) - they need business objectives to be met - again, at a very highly abstracted layer.
You're thinking about technology and capabilities and features and configuration options ... and maybe you're even thinking about price ... but that's not the layer they are operating at. They need an airplane to be built. They need a mine to be dug. They don't care about LUNs or stripe sizes or jumbo frames. They do care about contracts and legal commitments and "synergy". And that's why they rely on heuristics like business lunches and enterpris-ey sales guys and CIA guys giving keynotes at RSA.
I don't like working at that layer of abstraction so I built a business that operates on the layer I like to work at.[1] But as much as I dislike the higher layers of abstraction, it would be childish of me to think they were "wrong".
[1] You know who we are.
(Also a very constructive philosophy for technical folks, regardless of their preferred operating layer.)
Thing is, much of that stuff is transitioning to software-defined storage eventually. But that's what VSAN and ScaleIO are about.
Can someone else do it for cheaper? Maybe. Probably. But to a large degree, it's a "no one ever got fired for buying IBM" situation that you'd be fighting against.
Lest this be marketing for price is no object, this doesn't mean anything goes. That's where competition is important. And that includes from open source based solutions and smaller players. The key word is "solution." You can bundle up FreeNAS on your own well rested hardware, customized to the customers requirements and couple it with mucho support, hand holding, and SLAs. Oh, and proving financial endurance of thr organization helps too.Then you might at least be comparing something in the same universe.
Fortune 500 doesn't care about saving 20 dollars only to put the other 80 at risk. And rightfully so.
The interesting questions include: how long does it take to move off them; how reliable is the move; and what happens to your quarterly results doing a multi-year transition?
Another one is: How long is the current CEO going to stick around to manage the process?
You'd be surprised how many companies consider it in their best interest to run their own servers.
Until you've "done what they asked for" and then have 'em be completely unprepared for the ripple effect, it's hard to explain the phenomenon. The status quo, especially in a low interest rate economy, is a really Big Thing.
So it's a short list of ten for the other 2%. IBM, HP, ... ??
(Clarification: the ten who don't buy from Dell+EMC. Just curious about that. Direct competitors is my first guess ...)
It would be a very unusual Fortune 500 that has no VMWare.
How is this not an antitrust issue?
In the end though, just because you have a near monopoly doesn't mean you're violating anti-trust. EMC already had that reach, even without dell.
It's trading at a 35% discount from VMW, which is pretty steep.
Sure is, but keep a few things in mind..
1) This is the first time tracking stock has been issued on a public company so there are alot of people out there who aren't really sure what to make of this class instrument yet.
2) You'd expect a steep discount due to liquidity and lack of typical share holder rights. For example, if VMWare did pay a dividend, then the tracking stock would not necessarily have to pay that out to unit holders.
3) EMC paid a dividend. There are alot of funds that bought EMC to get the dividend. They've been forced to sell the tracking stock as VMWare doesn't pay a dividend and the tracking stock won't pay one.
I don't think it's the first time. https://en.wikipedia.org/wiki/Tracking_stock has some examples (although I don't know if those are public companies). I thought I had heard of other examples in the articles about the deal.
> 2) You'd expect a steep discount due to liquidity and lack of typical share holder rights. For example, if VMWare did pay a dividend, then the tracking stock would not necessarily have to pay that out to unit holders.
Sort of. The tracking stock is non-voting, but I'm not sure how much that matters. (You'd expect a small discount for that.) VMware doesn't have a dividend now, so I don't think that should influence the tracking stock price much.
> 3) EMC paid a dividend. There are alot of funds that bought EMC to get the dividend. They've been forced to sell the tracking stock as VMWare doesn't pay a dividend and the tracking stock won't pay one.
Sure, but theoretically VMW shareholders (anyone who thinks VMW is a buy or hold) should be incentivized to buy a bunch of cheap DVMT, propping the price up relatively close to VMW. Why do VMW shareholders think VMW is worth ~$73 but DVMT isn't worth more than ~$46?
VMware thrived under EMC.
Diane was able to keep VMware at a relatively safe distance away from the mother ship, all the while effectively using EMC's direct sales and channel partners to increase sales by something like two orders of magnitude. Plus she was able to convince Joe Tucci to do the spin-off IPO which unlocked a huge amount of value. Not all M&A's are the same.
The trick is not to get integrated into EMC proper, I think.
All of these have deep inroads in the enterprise and really makes working on Dell-owned products opaque to the user. It's like Dell has become, or will soon become, the Koch Industries of the computing world.
I'd like to see dell go closer to the Redhat model when it comes to VMWare after this closes out. Which would be a stark contrast to prior efforts. Also of interest would be offering "private cloud" hardware/software options. Would be very cool to have a turn-key solution for self-cloud hosting, and with VMWare's work so far, they might be in a better position to actually integrate docker as a solution than others, despite being different than their prior efforts.
https://labs.vmware.com/flings/esxi-embedded-host-client
Without going into more detail, VMware recognizes that Flash is a dead end and is working on converting things to HTML5. I'm fairly happy with the direction they are heading towards from a UI standpoint although I still mostly do things via CLI.
To your other points, you might want to check out Cloud Foundation.
Disclaimer: not a VMware employee, just a customer.
caveat lector, I work for Pivotal.
I'm an outsider, but not all industries can use the 'real' cloud (AWS and Azure) for legal reasons (think banking, finance & health). VMWare + EMC storage can be part of a compelling self-hosted/hybrid 'cloud' solution.
EMC will also slash out departments and products that don't perform. Make sure that whatever department / product you're going to work in is doing well.
> More precisely, they didn't understand their own irrelevance.
> EMC's brass – along with that of many other tech companies – believed in a sort of manifest destiny. Their corporate largesse and sheer market share meant that they could dictate terms to customers. They believed, seemingly honestly, that this would persist.
...
> To this end, my wish list for EMC II revolves around R&D. Dell: please let EMC II experiment. Let them try new things. Above all let them fail.
Archive link http://archive.is/tYQy7
Hope the Delliverse works out for them.
VMware hasn't owned SpringSource since Pivotal was created in 2013 https://en.wikipedia.org/wiki/SpringSource (i.e. "the Spring framework is owned by Dell" is still accurate, but not through Dell owning VMware)
The reason I think is that a lot of the of the revenue producing assets came from EMC (Pivotal Labs and Greenplum), VMware had SpringSource & GemFire which were decent revenue, but Cloud Foundry made no money until 2014+ (and now accounts for a large chunk of revenue).
Please.
I wouldn't wish Dell on anyone - although they've done what's necessary to be the leader.
does that ever happen ?